Toronto-Dominion Chief Continues a Run at the Border

By IAN AUSTEN

Published: June 22, 2011

TORONTO - While the Royal Bank of Canada has long enjoyed a profitable and comfortable reign as this country's largest bank, the United States proved tough to conquer.

On Monday, Royal Bank announced that it would sell its struggling American retail banking subsidiary to the PNC Financial Services Group.

But as Royal Bank retreats from the market, Ed Clark, the chief executive of Toronto-Dominion Bank, continues his aggressive push to the south. The bank, which now has more branches in the United States than in Canada, is the country's eighth-largest bank by deposits. With its $6.3 billion acquisition of Chrysler Financial, the firm is also among the country's top 20 lenders.

''You either had to go big or go home,'' Mr. Clark said.

''The biggest thing about crossing the border is that Americans get almost as much pleasure out of crushing an opponent as winning,'' he said. ''If they ever get you where they think they've put you on the run, they put you out of the game.''

When Mr. Clark first ventured into the United States, his compatriots figured Toronto-Dominion might meet such a fate. Canadian companies, in general, have a poor record in the much larger and more competitive American market. To mitigate concerns among investors, Mr. Clark made a small bet, purchasing just 51 percent of the Banknorth Group of Maine in 2004.

The expansion made strategic sense. The firm had few other domestic opportunities for growth. The country's five dominant banks, including Toronto-Dominion, had moved into all aspects of financial services after regulatory changes over the years. But given the political environment, mergers between the players were effectively impossible, leaving little potential for further domestic expansion. Since then, Toronto-Dominion has made seven acquisitions in the United States.

''They decided to move into the U.S. market in businesses they understand,'' said Brenda Lum, the managing director of Canadian financial institutions at DBRS, a debt rating agency in Toronto. ''They have been very good developers of retail banking.''

Mr. Clark joined the relatively small Canada Trust in 1991 after working as a senior government official and for Merrill Lynch. At the time, the bank's core mortgage division and deposit base were under assault. After scoffing at retail banking for much of their histories, the country's five largest banks had begun to eye the business.

Amid the heightened competition, Mr. Clark commissioned a polling company to conduct nightly customer satisfaction surveys. The data - rather than financial performance indicators - became the main factor in setting pay for everyone at Canada Trust, including Mr. Clark. He also studied successful retailers rather than other banks.

When Toronto-Dominion bought Canada Trust in 2000, Mr. Clark and his senior manager were tapped to remake the combined company. Toronto-Dominion wanted to become a major force in retail banking, and it looked to the much smaller Canada Trust for a road map. Almost immediately, Mr. Clark decentralized the business, giving decision-making power to employees who deal directly with customers.

When Mr. Clark was named chief executive in 2002, he saw similar opportunities in retail banking beyond Canada's borders. After a few smaller acquisitions, Toronto-Dominion made an aggressive push into the United States in the middle of the financial crisis. With tighter lending regulations, Toronto-Dominion and other Canadian banks escaped the worst of the mess.

The balance sheet strength allowed the bank to increase its American operations and lending when many established banks in the United States were struggling to stay afloat. It bought Commerce Bancorp of New Jersey for $8.6 billion in 2008.

''People said that was bad timing to go in there and hit that thing.'' Mr. Clark said. ''As it turned out, we had enough size to take advantage of the downturn, to have a huge growth spurt.''

While Toronto-Dominion has had great success at gathering deposits from retail clients in the United States, analysts say that the business has lagged in terms of turning that low-cost source of cash into loans. That may be, she said, partly a result of Toronto-Dominion's more conservative approach to residential mortgage lending. The acquisition of Chrysler Financial, now TD Auto Finance, is widely viewed as an effective way for Toronto-Dominion to significantly bolster its consumer lending. Unlike residential mortgages, new-car lending is a relatively low-risk, high-margin business.

''Chrysler Financial is a very good deal for TD,'' said Darko Mihelic, an analyst with Cormark Securities in Toronto.

Toronto-Dominion's outsize role in the Canadian market makes it unlikely that the American operation will ever generate more profit and revenue than its parent. But Mr. Clark said he did not need a similar, dominate position in American banking to do well.

''The great thing about the United States is that it's so large,'' he said. ''I don't need 100 percent of Americans to say that friendly service and convenience are differentiators for me. If you have 10 percent of Americans saying that, that's 100 percent of the Canadian market.''

This is a more complete version of the story than the one that appeared in print.

PHOTO: ''Americans get almost as much pleasure out of crushing an opponent as winning,'' said Ed Clark, chief of Toronto-Dominion Bank. (PHOTOGRAPH BY BEN NELMS/REUTERS)